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Fighting pension fraud

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Pension liberation scammers want to separate you from your hard-earned savings – financial journalist Gill Wadsworth explains what to look out for 

Pension fraudsters may pose as investment professionals to part you from your money From April 2015, those aged 55 or over have been able to draw their pension pots with complete freedom; a development that many believe has led to an increase in the instances of pension fraud.

According to a report by Aegon, a pension provider, published in December last year, nearly one in five (19%) people in the UK have received a cold call offering a free pension review or pension investment opportunity .  

Further, nearly one in six (15%) members received an offer suggesting they can access their pension pot before age 55. 

Kate Smith a pension regulation expert at Aegon, says: “There has been a significant increase in fraudulent activity since the new pension freedom reforms came in, but according to our recent research, a quarter of the UK remain unaware of the potential threat.”

Liberating you from your money 

If you’re not yet 55 and want to get hold of the money in your pension pot, you can’t. Pension rules dictate that it is not possible to withdraw money before age 55 unless you have a special exemption for ill-health, or special rules related to your occupation. Anyone who does so is liable to a tax bill of 55% plus additional exit penalties - in total these can amount to as much as 70% of the fund.

But the fact it’s not allowed doesn’t stop scammers. So-called ‘pensions liberation’ scams involve convincing scheme members that there is a way around the tax penalty and offering savers a ‘loan’ from their pension plan. 

Others promised to reinvest the member’s pension, offering ‘guaranteed’ double digit returns which would far exceed anything a legitimate plan could achieve.

However, not only were the members still completely liable for the 55% tax charge along with the exit fees, they more often than not saw the rest of the pot disappear into thin air.

Cases of pension liberation have increased dramatically since April 2015. The City of London Police reported £9m was lost to pension fraud in the five months following April 2015; twice the sum taken in the same period the year before .

Too good to be true

While many savers may be suspicious if something sounds too good to be true, fraudsters work hard to appear legitimate.

Calum Bennie, investment expert at Scottish Friendly, says: “The problem is that many of these pension predators are able to disguise themselves as reputable and credible. Pension freedom has been, rightly, welcomed but we have to do more to ensure that it is not blighted.”

Indeed, most of the dodgy scams give the illusion of respectability since they are HMRC registered. However since any scheme can register with the tax office, it does not make it trustworthy.

Angie Brooks, chair of ACA Pension Life which represents some of those who have lost their pensions to fraud, says HMRC conducts no investigations into the pension schemes it registers.

Brooks says: “The government is ultimately responsible, as its agencies – namely HMRC, the Pensions Regulator (TPR) and the Financial Conduct Authority (FCA) – are failing in their duties by allowing this scandal to run and run.”

There have been few, if any, arrests for pension fraud and in spite of hundreds of statements made to the Serious Fraud Office, scammers are still getting away with it.

Brooks adds: “Right now, there is someone out there losing their pension to fraud and it is the same guys doing it today who were doing it in 2010.”

Raising red flags

In the absence of significant protection from the authorities, savers need to arm themselves with the knowledge to avoid falling into a scammer’s trap.

  • Be wary of offers of a pensions review from companies that you don’t have a current relationship with. 
  • If you want an assessment of your financial health contact a registered professional financial adviser.
  • Beware the lure of excess returns – particularly from unusual asset classes. Scammers have invested in everything from storage pods to truffle farms.

Scammers also employ stock phrases that should set alarm bells ringing. Things you should watch out for are: 

  • Legal loophole
  • Sophisticated investor
  • Too good to be true 

Brooks says: “If anyone tells you there is a ‘legal loophole’ they are lying. If anyone tells you you're a ‘sophisticated investor’ and should be investing your pension in assets which are not traditionally available, red flags should be hoisted. And if you are told you can transfer your pension free of charge, make sure you find out exactly what the long-term charges entail. There is no such thing as free.”

Remember – if you’re ever in doubt, seek advice from a professional financial advisor. 

Five steps to fight off fraud

Be wary of people or companies claiming knowledge of tax loopholes, offering to unlock your pension before age 55 or promising to secure extra tax savings that are outside the current pension rules and regulations.

Watch out for individuals or companies offering very high returns from overseas or ‘unusual’ investments.

Beware companies that attempt to rush you into making decisions. If they are applying pressure to transfer funds or send documents quickly and you feel unsure contact The Pensions Advisory Service before making a decision.

If you are approached out of the blue over the phone, via text message or in person door-to-door or the firm in question only has only a mobile number, a website or a PO Box number as contact details then be cautious.

Check that the firm you are dealing with is registered with the FCA before signing anything. You can also check the FCA’s Scamsmart warning list. The list contains the names of known investment scheme scams.

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This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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